The Richest Man in Walnut Grove
We didn’t have cable TV. Cable TV penetration was 23% in 1980. The concept of a monthly fee for a “nice to have” wasn’t in the cards and TV still had a stigma as the “boob tube”. I only saw MTV at Chad’s house, and my dad had this 40’ antenna next to the house that was supposed to get us more channels. If we pointed it just right toward the northeast, we could see Detroit Tigers games. Realistically though, we got a heavy dose of ABC, NBC and CBS.
“Little House on the Prairie” aired on NBC. In the first episode of season 2, Charles works for Hanson’s Mill. It closed and Charles is left to admit to the Olesons (they run the only store in town) that he can’t pay the family debt. Harriet Oleson is her usual rude and condescending self. Charles is so embarrassed by having to take on credit to pay the family bills that he goes on a mission to pay it off instead of having to use credit ever again at the mercantile store.
I’m an idealist and I romanticize about the world being perfect. I think that’s why I was always drawn to Little House. I appreciated Charles “Pa” Ingalls’ approach to life and his willingness to do hard things to make his family’s world a better place. And I could see how those life lessons could be applied to my world.
In this particular episode, the family endures embarrassment for not being able to pay their bills. At the same time, they realize how much they miss out on little things like their writing tablets and sugar.
Charles and his family come together through sacrifice and shared responsibility to pay off the debt. Charles helps a friend repair a dam on his farm, Caroline plows the field, Mary takes on a sewing job and Laura does double chore duty to help Mary. As the show progresses, Charles looks around the dinner table and declares “cash on the barrel” from here on out. He comes to the conclusion that borrowing the money to meet the family needs isn’t worth the indignity.
The climax of the episode occurs when Charles marches the whole family to the mercantile store. Dressed in their Sunday best, Charles and family stride to the counter and present the money to payoff the debt. Nels Oleson, forever paying his debt having married Harriet and raising two brats for children, declares that Charles is “the richest man in Walnut Grove”.
Unfortunately, the US government isn’t headed toward “cash on the barrel” any time soon. Enter: the debt ceiling. The debt ceiling is the maximum amount of money the federal government is allowed to borrow to pay its bills. The government reached its current ceiling of $31.4 trillion in January. Once the debt ceiling is hit, the Treasury has to find other ways to fulfill its financial obligations including but not limited to paying interest on the debt, paying Federal employees, operating Federal Parks, and funding Social Security and Medicare benefits.
Treasury Secretary Janet Yellen claims that June 1 is a drop dead date to raise the ceiling. She suggests the Federal Government defaults at that point and we have financial armageddon. It’s been implied that Social Security checks might be delayed among other dire consequences.
Let’s do a little review by way of some recent history. The debt ceiling was created in 1917 to allow the Treasury Dept to issue bonds without having to go to Congress until the ceiling is reached. Since 1960, Congress has acted 78 separate times to permanently raise, temporarily extend, or revise the definition of the debt limits. This has happened 49 times under Republican presidents and 29 times under Democratic presidents. Over the past decade alone, the debt ceiling was raised or suspended eight times to avoid a government default.
Conflicts over the debt ceiling usually occur between Congress and the President when opposing parties hold the majority. Two recent conflicts occurred in 1995 and 2011. In 1995/1996, House Speaker Gingrich and President Clinton squared off. Gingrich wanted spending cuts and Clinton refused to make the cuts. The result was two shutdowns totaling 26 days. And when I say “shutdowns”, I’m referring to the furloughing of workers to avoid paying their salaries for those periods. In the first shutdown, 800,000 workers were furloughed. In the second, 284,000 workers were furloughed (see the table below for agencies affected by the shutdowns). The two sides settled on a balanced budget with modest spending cuts and tax increases. In 2011, President Obama and Speaker Boehner went toe to toe. Congress eventually raised the ceiling and the administration agreed to reduce government spending over a 10-year period.
When the headlines grab us with words like “default”, it’s informative to talk through what’s happened in the past. In the 1995 shutdowns, 368 National Parks were closed, passports weren’t processed and the CDC stopped doing disease surveillance, among other things. Notably, military pay and benefits were not adversely affected as resolutions were put in place to ensure payments went out as scheduled.
Since Social Security’s inception in 1935, a debt ceiling has never impacted payments. In 1996, lawmakers allowed the Treasury to borrow $29 billion to pay Social Security benefits. Congress temporarily exempted this amount from the debt limit. During the 2011 fight, Treasury and the Federal Reserve officials discussed a plan to continue making one-time payments on US debt if it came to such an impasse.
So what’s likely to happen this time around? This is all conjecture of course. I share many of your feelings that Republicans and Democrats are divided more than I can remember. And the deadline is looming close. That said, each side has a vested interest in making the situation sound worse than it is. The June 1 date is an estimate. As mentioned above, parts of the government can be shut down to protect the really critical obligations. And additional tax revenue comes in on June 15. So if the government can cobble together a plan to keep essential areas operating until then, they may have runway into July. I suspect the following will happen:
The government will do everything it can to protect Social Security, Medicare and Medicaid funding along with military salaries.
Stock markets will be largely unaffected. For perspective, the stock market was flat in 2011. In 1995, it was up 34%. There is plenty going on in the markets with a more direct short-term impact: interest rates up from 0% to 5% and stress in the banking sector.
In 2011, the S&P credit rating agency downgraded the US credit rating. They did so to reflect the fact that the debt ceiling negotiations didn’t address the long-term debt problem. This is analogous to your credit score going down. Theoretically, this could lead to higher interest rates on autos and homes, pushing the borrowing rates higher.
We talk alot about the debt ceiling and all the dire consequences. We don’t spend a ton of time reviewing what’s really behind the negotiations. Here’s what a bipartisan bill might look like:
Budget caps - Republicans want 10 years of budget caps. Democrats want 2 years. A compromise will meet somewhere in the middle.
Covid funding - It’s estimated there is $60 billion in unspent Covid relief funding. This most likely will be rescinded.
Permitting reforms - Both parties want to streamline federal permitting regulations.
Work requirements - Republicans want work requirements for federal programs. President Biden has indicated he is open to such a compromise (other than for Medicaid).
Just as the Ingalls’ came together through compromise and sacrifice, at some point I suspect we will see Biden and McCarthy walk out to a press conference in lockstep to announce a resolution. It won’t be to announce a “cash on the barrel” spending approach. But hopefully the two will announce concrete steps for the US to manage its debt load, keeping America the richest country in the world.
Jared
Planning Pays Dividends
Brian Kellett, brian@kellettschaffner.com. Phone 513-312-6067
Dave Bodnar, david@kellettschaffner.com. Phone 513-258-6973
Jared Kline, jared@kellettschaffner.com. Phone 513-768-2238
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